What 2025 Taught DSOs—and the Road to Renewal
By Brian A. Colao
Director, DSO Industry Group at Dykema
The year 2025 will be remembered throughout the DSO industry as The Year of the Muted Recovery. Entering the year, hope was high that the M&A drought and challenging conditions that began in mid-2022 and caused over 50 significant DSO sales processes to be abandoned would finally subside. A succession of interest rate cuts in late 2024, the inauguration of a new presidential administration promising pro-business reforms, and signals of economic stabilization and the promise of an end to a number of global military conflicts gave rise to expectations that the DSO M&A markets would make a robust rebound.
In my previous year-end article, I identified the critical conditions necessary for a true market revival: sustained interest rate reductions, moderation of inflation, resolution of global unrest, and a regulatory environment that fostered business growth. I also projected that DSOs would increasingly focus on technology adoption for same-store growth to drive EBITDA, compensating for muted acquisition activity.
The Reality: A Muted M&A Market
Unfortunately, virtually none of the foundational pillars for recovery materialized. In 2025, interest rates remained stubbornly high; inflation— though improved—never fell below the key 2% threshold; economically crippling tariffs were introduced against most of the developed world and, as of the time of this writing, much uncertainty remains as litigation over the validity of tariffs appears headed to the US Supreme Court for a decision sometime in 2026. Additionally, the military conflicts in Ukraine and the Middle East have not concluded and continue to exert downward pressure on global markets.
The administration, despite its business-friendly posture, has targeted healthcare fraud aggressively, fueling a notable spike in federal enforcement actions and producing further headwinds for DSO deal-making, which is the subject of a separate article contained herein by my partner, Leigha Simonton, former US Attorney for the Northern District of Texas. As a result, M&A volume remained extremely limited, valuations were pressured, and many groups opted to focus inward, delaying growth decisions and focusing on operational efficiency.
Signs of Hope for 2026: The Year of Renewed Opportunity
Despite these frustrations, several positive signals have emerged, setting the stage for potential improvement in 2026—The Year of Renewed Opportunity:
- The Federal Reserve at its Sept. 16 meeting, finally, in a highly anticipated move, reduced interest rates by a quarter point. As of the time of this article, there is optimism that there will be additional rate cuts in 2025 and into 2026 because it will take several more rate cuts to create truly favorable economic conditions for the M&A markets.
- Preliminary peace talks in Ukraine and calls for resolution in the Middle East offer guarded optimism regarding global stability.
- Legal challenges to tariffs may result in their invalidation, potentially easing supply costs and reducing inflation.
- Sellers are increasingly adopting pragmatic valuation standards, acknowledging the need to turn investments amid evolving market conditions.
- There have been at least two significant transactions that have closed and several potential transactions that, as of the time of this article, are under Letter of Intent (LOI) and there is cautious optimism that several closings will be announced before year-end, which represents at least a muted recovery with the chance for a fullblown recovery in 2026.
Given these developments, I anticipate an uptick in M&A activity beginning in the second half of 2026, with the potential for momentum to accelerate should economic circumstances and policy frameworks finally align.
A New Era of Healthcare Enforcement
This year has ushered in a markedly elevated threat landscape for health care businesses. The US Department of Justice (DOJ) has prioritized healthcare fraud enforcement at an unprecedented level, shifting its approach from isolated financial disputes to aggressive criminal prosecution in cases that, in prior years, might have remained civil contract matters.
This effort accelerated following the DOJ’s May announcement identifying healthcare fraud as a top priority. New initiatives include financial incentives for whistleblowers to report offenses spanning federal benefit programs, private insurer schemes, and a broader array of conduct now categorized as “fraud,” including actions impacting patients, investors, or other nongovernmental entities. The DOJ reinforced its commitment with new dedicated teams, collaborative working groups with HHS, and the launch of the Health Care Fraud Data Fusion Center—a sophisticated operation leveraging advanced analytics and AI to identify emerging fraud schemes.
June 2025 saw the largest healthcare fraud takedown in American history, with criminal charges brought against 324 defendants—including nearly 100 licensed medical professionals—for allegedly orchestrating $14.6 billion in fraudulent activity. Notably, this crackdown involved coordination with 12 State Attorneys General’s Offices and extended beyond federal payer fraud to include wire and mail fraud charges associated with private payers, demonstrating a wide net of enforcement.
Given this aggressive climate, industry participants must maintain rigorous compliance and seek experienced counsel with deep knowledge of the DSO industry, government agency processes, and the structuring of advertising, marketing, business development, patient incentive, and compliance programs—and certainly at the earliest indication of possible scrutiny or an internal concern. The government’s sophisticated investigative approach means that even seemingly minor abnormalities can escalate quickly, and the risks of proceeding without expert guidance have never been greater.
Technology: The Imperative of Innovation
Just as predicted, technology adoption for same-store growth has become essential. DSOs nationwide have piloted—and increasingly implemented—innovations in diagnostic AI, cloud-based practice management, automated RCM tools, patient finance solutions, and specialty integration platforms. While adoption has advanced more slowly than hoped—primarily due to challenges in education, training, integration, and implementation—it is steady and inexorable.
Rising costs for labor, supplies, and equipment, combined with stagnant reimbursement rates, have made technology the only viable solution for sustaining margins and driving growth.
A Bright Spot: The 2025 Dykema Definitive Conference for DSOs
Amid an otherwise stagnant year, the Dykema Definitive Conference for DSOs emerged as the industry’s true highlight and north star. With attendance surpassing 2,500 and experiences selling out within just hours, the event reaffirmed the strength and future promise of the DSO community. Breakouts and workshops quickly reached standing-room only, underscoring the appetite for practical insights and forward looking strategies. The conference also shined a spotlight on industry leadership: Bob Fontana (The Aspen Group) and Stan Bergman (Henry Schein) received the Lifetime Achievement Award, while respected voices like Dr. Sulman Ahmed (DECA Dental) and Steve Bilt (Smile Brands) reinforced their commitment to advancing the profession.
Just as significant, vendors and sponsors showcased innovations that will help power a new era of growth—advancements that align directly with the industry’s need to innovate, refine operations, and prepare for the rebound ahead. The conference made clear that while recovery may take longer than hoped, the foundation of innovation, leadership, and community is firmly in place to carry the industry forward.
Strategic Outlook: Thriving in Uncertainty
As The Year of the Muted Recovery draws to a close, DSOs must remain strategic and resilient. The best-run organizations will not simply survive the volatility; they will use this period to innovate, refine internal operations, and position themselves to lead as the market rebounds.
My prediction: 2026 will begin with the same cautious progress but, as the year unfolds, will reward those organizations who are prepared—operationally flexible and technologically advanced—when true recovery gains traction. With strategic adaptation and forwardthinking investment, DSOs will be well-positioned to lead dentistry’s next era of growth.
